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Last week, Gallup released results of a nationwide survey asking Americans what they think is the best long-term investment. The results weren't surprising:

34% said gold.

19% said real estate.

17% said stocks.

14% said savings accounts.

10% said bonds.

Similar surveys have been run over the past decade. Stocks are usually near the top. Gold usually isn't even an option. Digging through news archives, I couldn't find a single survey asking the public what they thought about gold between 1998 and 2002 -- anywhere. People just didn't seem to care. Today, Internet tracking services like this tell you most of what you need to know.

I'm going to make one prediction and pose one challenge to readers. My prediction is that over the next 10-15 years, reality will prove today's expectations of the best long-term asset to own painfully wrong. My challenge is for readers to find a historic example of that not ever being the case.

There are only a few ironclad rules of investing. One is that there's a negative correlation between sentiment and future returns. When the public expects outsized returns, they practically guarantee otherwise. When people won't touch an asset because they think it's toxic, the stage is set for outperformance. Think about gold. The idea of investing in gold was virtually unmentionable 10 years ago. Among other things, that set the stage for an epic rally ever since.

Other recent examples of assets doing the opposite of expectations are powerful.

In 1999, a survey by the Securities Industry Association showed that investors expected stocks to return 30% a year going forward. Ever since, they've returned roughly 30% less than that.

As Foolish colleague Todd Wenning wrote last week, BusinessWeek penned a cover story headlined "The Death of Equities" in 1979. Reality was the opposite: 1979 was close to the birth year of a two-decade mega-rally.

In 2005, just 5% of homeowners thought the value of their home could decline. Another 2005 survey showed that the region most bullish on housing was Florida -- consequently, it was among the hardest hit once the bubble burst.

Run through history, and you see the same pattern over and over again. Assets investors are the most bullish on perform miserably in the future, and vice versa.

The reason why isn't a mystery, though this is a case where psychologists can explain what economists cannot. One of the most powerful forces in behavioral finance is called recency bias. It states that when we try to predict the future, we tend to just extrapolate the recent past. If an asset did well in recent years, our expectations of future returns jump. If it crashed in recent years, we give up on its future.

That tendency to chase patterns is natural, but history nearly always plays out the other way. Since 1820, the real (inflation-adjusted) returns of major assets been good for stocks, OK for bonds, and near zero for gold and real estate.

Those returns have strayed dramatically over the past 10 years -- particularly for stocks and gold:

Stocks

Gold

Treasury Bonds

Real Estate

Average Annual Real Return, 1820-2009

6.6%

0.47%

2.9%

0.32%*

Average, 2000-2010

(3.18%)

10.86%

4.45%

0.74%

Source: Deutsche Bank Long-Term Asset Return Survey.*Some studies find the long-term real return of real estate is zero. Part of the positive long-term return shown here is likely due to changes in average home sizes.

Here's what's important. If one breaks up these 190-year returns by decade, an unmistakable pattern emerges among all asset classes: Periods of above-average returns are invariably followed by periods of below-average returns, and vice versa. This isn't surprising, since there's a negative correlation between sentiment and future returns, and sentiment is skewed by recency bias.

The fact that recently stocks and gold have performed abysmally and incredibly over the past decade does a number on our expectations of future returns. But historically, it makes the odds of repeating that performance over the coming decades extremely low. Since 1820, gold has produced two consecutive decades of positive real returns only once. Stocks? They've never undergone two consecutive decades of negative real returns. When there is a decade in the red, the preceding 10 years have historically brought stock returns of double the average.

If history is any guide, stock returns over the next 10-15 years will be above average, and gold returns will be below average -- just the opposite of what the Gallup survey predicts.

So here's my challenge. Can anyone think of a time when an asset the general public was most bullish (or bearish) on performed the best (or worst) over the subsequent 10 or 15 years? I can't. If one exists, share it in the comment section below. If not, think long and hard about how you feel about stocks and gold.

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.

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if you look at the 10 year trends comparing gold prices vs treasury bonds you see a classic divergence. in fact you see gold outpacing bonds during good economic news climates, that is it widens when it should shrink. this year that spread increased 35% !

clearly the assumption that stocks will out perform real assets is predicated on the assumption that the fundamentals are in place.

So the real questions regarding fearless predictions are: what fundamentals are in place that signal a turnaround? Why is the Philadelphia fed reserve bank predicting a 2012 recession probability at 50%-other respectable sources much higher? Finally will we as a nation allow our representatives to borrow our way out of this mess so the consumers and businesses that serve them go back to work ?

63% of all marketable public debt must be turned over within 4 years. Over $1MMMM each year going forward must be turned over. At what interest rate ? and who will pony up...

I agree completely Morgan, but I like Keynes's quote when he said "The market can remain irrational longer than you can remain solvent." It's just hard to make a profit guessing when people's expectations are going to be proved wrong by reality.

I think this analysis is far too simplistic, and that some things really ARE different this time.

1. Stock valuations - Some folks characterize stocks as cheap based on things like forward operating earnings times some random P/E ratio or forward operating earnings compared to Treasury yields. Trouble is right now Treasury yields are artificially low and corporate profits are the highest on record, to get higher stock prices you have to beleive these things won't revert to the long term mean.

2. Gold is not going up, the dollar is going down, and I would argue that gold is a leadig indicator of an even lower dollar and higher interest rates. Never before has the FED created so many dollars, so this is different than at any time in the past.

3. Both government and houshold debt exceed 90% of GDP, this has never been the case before.

For sure gold is risky, you need to selll when interest rates rise, and I think some stocks may rise over the next decade, but index investing is a recipe for losing money over the next decade. It would be very foolish to invest it the S&P 500 (dominated by financial stocks) now (maybe not if you can get Warren Buffet terms) as it is to put all you money in gold. I don;t think relying on historical patterns will work this time, you are fighting the FED if you expect it. It is more important than ever to invest internationally.

I agree that now is a good time to buy high-quality, dividend-paying equities, especially the ones that have been unfairly punished by the broad market sell-off.

But consumer sentiment favoring gold is no reason to sell gold. The reasons behind the run-up in gold are every bit as valid now as they were a decade ago -- indeed, moreso: rampant printing of paper money, unstable and debased currencies, and massive acquisitions of precious metals by central bankers looking for something other than the dollar to keep on their balance sheets. Chinese demand for gold alone is likely enough to keep gold prices high for the foreseeable future.

This sentence is the article intrigued me: "If history is any guide, stock returns over the next 10-15 years will be above average, and gold returns will be below average -- just the opposite of what the Gallup survey predicts." I think it's a mistake to judge future investments on past performance. I lost a lot of money on Enron, but judging by its past history (the price was continuously rising, it was a good investment choice. I'm not saying that gold is a better investment than stocks or vice-versa, and I don't know if the majority of the Gallup Poll respondents will be correct, but I don't think that history should be the primary guide in investing. The Federal deficit is coming closer to $15 trillion--double what it was less than a decade ago. Whether there will be enough money left in another decade or two for Medicare and Social Security is debatable. These obstacles have never happened before and could bring new challenges that the economy and stock market have never faced before.

<< I think it's a mistake to judge future investments on past performance.>>

I think it's a mistake to judge future investments on past performance if one *extrapolates.* Historically, however, there is a decent correlation between past performance and future returns if one does the opposite -- particularly for broad asset classes.

This is an oversimplification. What matters is value. But looking into assets that have posted a decade of below average or above average returns is probably a good jumping-off point when searching for value.

Mr. Morgan comments, "And frankly, whether the poll was conducted last week or two weeks ago changes the meaning by exactly nothing."

Um, really? This is what you believe.

According to the poll, "The Aug. 11-14 Gallup poll was conducted at the end of a tumultuous week on Wall Street that sent the price of gold soaring.

Gallup asked a similar question from 2002 to 2010, but that question did not include gold. Real estate, savings accounts, and stocks jockeyed for the top spot during that time. Americans' faith in real estate and stocks suffered amid the 2008 economic crisis, but rebounded somewhat in 2010."

Would you agree that survey answerers favor whatever is going up at the moment as a long term investment?...Therefore the survey is only a short term sentiment...

Not to mention (but yes to mention) that the survey does not in any way so much as imply that these people own gold... only that they believe it is a good long term investment.

The average American has NO IDEA where they could even buy gold. Go ahead and ask them.

Interesting analysis, and jives well with classic value investing principles. It's been alluded to in some of the comments already, but I think that it's important to note that, as a class of investment, "stocks" would seem to offer a much greater deal of variety and strategic flexibility than gold, certainly, and to a lesser degree, bonds. In other words, growth and dividends.

It's tough to make investment decisions on the basis of surveys. What people say they will do vs. what they actually do are two very different things. People may say they prefer gold, but are they really buying gold? We could clearly see people flipping houses in the 2000s. You could see half the homes on every block under construction at some point during that bubble.

I know very few people that have actually bought physical gold and silver. They are here and there, and perhaps they are being clever and concealing that information from me, but I don't see it.

Until I see hard evidence that American gold ownership (perhaps less than 10% of American households???) is anywhere close to American participation in the stock market, I will be careful about the conclusions I draw from surveys. Particularly when the results of the survey cannot be compared to any other (as you said, gold was not on any previous survey, so what is the objective reference point?)

Next point, don't ever include gold returns from pre-1971 in your graphics. The dollar was defined a fixed weight of gold, making the concept of gold returns in dollars quite meaningless. Don't be the umpteenth financial writer to misunderstand what monetary metal means.

Finally, you imply that gold demand is something new. The opposite is true. Gold has been in demand in every country for thousands of years. The demand for paper money, however, is entirely new and it is an extremely volatile demand. Gold's current price is a reflection of that volatility and has very little to do with any change in gold demand.

Here' my problem with your analysis - let's assume 34% of people are bullish on gold- this implicity means 66% (or the majority is not). Thus, based on your own logic, Gold (at least at this point) will continue to outperform until the majority of the population believes this as well. You're thesis may ultimately be correct but your timing is off. The bull market in real estate lasted about 20-30 years. We are only 10 years into the bull market for gold, silver, and other commodities. In addition, currency debasment, debt issues, and inflation (at least in outside the U.S.) are all supportive of gold going higher in dollar terms. Read more and educate yourself from folks who were accurate in the past (see linke below):

Let me add that in any question of investment, stocks should trump gold. However, suppose this survey had been taken in the 1930s. The DJIA was near 400 in 1929. Depending on when you timed your entry during the 1930s, you could have made some back here and there, but the DJIA fluctuated between 90 and 150 for the entire decade and sat at 114 on Dec 1, 1941.

Suppose this survey had been taken in 1931 with stocks in the dumps, down 70-80% from their bubble peak. Did stocks outperform over the next decade?

someone please list the positive fundamentals are in place now that indicate a positive curve favorable to equities over the next year...

gold is becoming defacto money...why are the major US banks buying the yellow stuff ? why has Texas A&M replaced ~$680MM worth of paper assets with gold bullion ? why are the Chinese the largest producers yet the smallest holders of gold recommending gold to their citizens for retirement ?

the US dollar is on a respirator. if history indeed repeats, a theory I'm not so sure of, then look only to the 70's...the UK devalued the sterling as a means to stimulate their economy and how did that work out ?

Overnight the market punished the pound devaluing the currency by 15%. World markets dumped the silver stuff as the reserve currency and well, the rest is history...I believed the English refer to 10 year period following this brilliant monetary strategy as the winter of discontent.

sentiments aside, can anyone convince me over the next 2-5 years that we are headed toward an investing climate favorable to paper assets of any type. predicting the future based on negative facts and sentiment is not convincing or valuable. sorry

Hmm I am on the Silver bandwagon, have doubled my profit from last year ($19 an oz) to its current $41 oz price. I am buying more as I see the dollar weaken and Silver trying to get to $50. Remember there is less Silver out there than Gold.

To answer the question of "did stocks outperform over the next decade?" I think the answer is yes.

Using the real returns from Shiller's S&P 500 data, the real S&P went from 131 in Jan. 1932 to 137 in Jan. 1942. So that's flat. But the average dividend yield during that time was 7%. Add that in, and yes, returns were above average.

You tell me chief. The dollar is not going to be the reserve currency anymore. The dollar is barely hanging on right now and is going to further degrade. The U.S. is bankrupt. We can not afford the permanent bases set up all over the globe. We can not afford all the wars we are in. The Fed keeps printing money. The banks are failing. The people of the republic don't want to bail the banks out and never did but are being forced to by our so called elected officials. Sure wall street will come back. Here I have some more Soma for you. Sweet dreams. My god it absolutely amazes me how many sheep think all is still well and all is normal. We are so past the point of no return it is not funny. The U.S. is about to become a third world nation and the people will not stand for the crap that the banksters and wall street who own our government are doing to much longer. Nighty night. Sheep!

I agree that Gold, for real, is in a bubble - question is, where in the bubble are we at? Is there still time for one good (well-watched) run up? IMHO, truly successful managers of money (which I am not necessarily) do not 'buy and hold' but instead 'plant and harvest'. Planting money is not dissimilar to planting crops - seasonality is important - i.e., buy low - but knowing when to harvest (when the crop is not overripe) is also important. And, ya gotta watch out for pests of various kinds and disease. I agree with your analysis, whenever you are patting yourself on the head about an investment and think that things are going pretty well, that's the time to sell.

By those terms, stocks should always trump gold. Let me say that gold, to me personally, is not an investment. It is a form of savings. I think the price of gold will continue to rise due to Fed policy/gov spending. No surprises there. But to say that gold will outperform dividend paying stocks? They shouldn't, since there is risk involved in stocks that is not present in gold. A company's stock will always end up at zero at some point. It may take 1 year or 100 years, but zero is the final stock price of all companies.

By taking on that risk, as slight as it may seem, you had better see a return higher than gold.

Gold should be a part of your savings. If you have no savings, you shouldn't even be worrying about the returns you can get from anything. You should be saving. Gold, silver, and even a few slips of paper should make up everyone's savings for a rainy day.

If you do want to take on additional risk in gold exposure, then you can do so in the stock market, buying PM equities. I always recommend Christopher Barker's great analysis, but there is a fellow named speedybure that needs props as well. After all, he's made me a few slips of paper lately :)

Obviously some stocks will outperform every other asset in the long term.

I always think to myself, "I wish I bought this when..., I wish I did that when...". It is my job now to invest in things today that I otherwise would have said in 5 years "I wish I bought XYZ 5 years ago."

This is the reason I've been overweight in stocks like AAPL for the last few years. There will always be stocks that outperform everything.

Also, wisely use options to enhance the returns of anything you invest in (or potentially invest in).

Again, educate yourself instead of falling prey to the simplistic thinking of "the nominal price of gold keeps going up in dollar terms therefore its a bubble." Learn more about the history of gold, fiat currencies, and inflation.

Unless the event continues to happen until the end of time, at some point that chain will be broken and that acquiring company will go to zero.

Such is the nature of the market. Of course, government can interfere and prevent this process. The Soviet Union tried that and didn't have a single firm fail for 70 years. Then they all failed at once instead :)

What about selling your shares in the market for cash. With respect, your ownership or the buying firm's ownership are irrelevant. Eventually, that company, it's owner, owner's owner, etc. will fail. Maybe not for 1000 years, but at some point, the aspect of the original company that got bought will provide 0 value to the centuries later company.

Even ignoring the whole "how many grains of sand can you take away to still call it a pile of sand" philoisophical question, and ignoring the "provide 0 value" within the ongoing concern idea, and overlooking the abserdity of an "you can't point to a single company that has lasted forever" argument..... the fact remains that a cash buy out does not mean the company won't go to zero, just that the ownership structure changed and it hasn't happened yet.

I've seen studies showing that the long-term real appreciation rate of residential real estate is zero, but money isn't made on appreciation alone when investing in real estate. Are you sure you're not omitting income from rent from your "real return" figures?

Morgan, on the 10-15 year timescale you're using, I agree with you. On the 1-3 year timescale, however, I disagree with you. Gold, ultimately, will crash, but it has a lot longer to run first.

Today, I'm a gold buyer. Sometime in the next few years, gold will go parabolic, and I will be watching it like a hawk. The instant the long leg of the parabola starts to look wobbly, I'm a seller. I'll sell it all and won't look back. Rather, at that point, I'll put all the proceeds into some nice solid stocks, crack open a cold beer, and drink a toast to this article.

Up 10.86% over only ten years. That's way cool. I'm totally buying some gold tomorrow! Just kidding. I wouldn't buy the shiny crap with some one else's money. There's only one reason gold has been doing well, fear. When things change for the better the fear will decrease and so will the price of gold. How did gold do last quarter? Were sales and EPS up or down compared to the previous quarter? How's the cash flow? Does it have a competitive advantage over any other precious metals? Remember what Buffet said, "Gold has no utility." It's value is only a perceived value not an actual value.

Well, my gold fund has made over 40% this year, and stocks are at a small loss so far...however, I did sell 2/3rd's of the gold and, like a fool, have subscribed to Stock Advisor and have started accumulating recommended stocks! So we'll keep our fingers crossed...

I don't understand why people would claim stocks are undervalued. If Intel has an earnings yield of 11%, why would I not want to buy into that? They're making 11 cents for every dollar I invest. Why would that be overvalued compared to any other asset on the planet?

"The problem is, everyone has that mentality. No one's plan is to wait for gold to crash before selling. Everyone thinks they'll get out before it gets ugly. Most won't."

What if it doesn't crash? Does everything crash?

Did Amazon stock crash?

Has Xom crashed?

Corrections sure, but crash?

Of course it could crash. If the price of gold goes parabolic it will majorly correct. So, you're basically saying you shouldn't buy gold because its in a bull market and bull markets often eventually go parabolic and then correct.

I am not asking a rhetorical question. I really want to know, is anything wrong with my analysis.

I don't understand why people would claim stocks are undervalued. If Intel has an earnings yield of 11%, why would I not want to buy into that? They're making 11 cents for every dollar I invest. Why would that be overvalued compared to any other asset on the planet?

The problem with the herd mentality that affects stocks, gold, etc. is that you might see where the herd is going but you don't see the cliff it goes over until it is too late. If going with the herd really worked there would be a heck of a lot more rich people. Use rational common sense to the best of your ability and spread your "bets".

Recency bias + confirmation bias seems to be playing a role in the perception of GOLD as the best long term investment. Either that or the phenomenal poor financial education provided to the majority of those polled.

However, Real Estate showing up as number two flies in the face of recency or confirmation bias. The only explanation would be poor education.

As far as places to put your money -- investing in your own business is smart if you are educated, able, hard-working, and the opportunity comes along. After that I'm feeling modern portfolio theory and rebalancing as the best guard against inflation.

Just a few points: 1. There's a lot of government intervention these days, in other words the free market ain't so free anymore which makes it that much harder to predict what's going to happen next. 2. I don't think there is any precedent for what has been going on with the economy lately, even the last couple of decades, more "irrational" than ever. 3. From an earlier post (thanks SmallWords): "I like Keynes's quote when he said "The market can remain irrational longer than you can remain solvent." It's just hard to make a profit guessing when people's expectations are going to be proved wrong by reality". 4. I know I'm certainly not the first one to say these famous (infamous?) last words but just maybe 'this time it's different'.

You're surprisingly (;-)) right about this. It's incredible how the market changes its entire perspective on the basis of a handful of years of new experience. I own gold, but constantly rebalance it with stocks. This gives me cash while stocks are down.

The last 4 decades should be evidence of why asset allocation and rebalancing is important.

An employee earning a below average wage of 26000 per year (adjusted for inflation and average real wage growth), in order to get the benefits Social Security will guarantee to him and his wife, would have to invest his 6.2% payroll tax and get a steady 12% return on investment per year every year above taxes and fees.

That same employee without a wife would have to get 10%.

A self employed person, investing the entire 12.4% payroll tax, would have to get 8.5% if married, 6.3 % if single.

An employee earning the average wage of 44,000 per year, adjusted, would have to get 10.4% married, 8.5% single; self employed married 6.7%, self employed single 4.5%.

An employee earning 70,000 per year, adjusted would have to get 9.2% married, 7.3% single; self employed married 5.5%, 3% single." - AngryBearblog

Presumably if SSI ended tomorrow your employer would remember the 6% he contributes is his money to spend, not yours to retire on and you probably cannot expect to get it to invest.

Of course Government popularity is at an all time low now, but was viewed much more favorably after the 1929 Wall Street disaster.

While the point of your article is a good one, there are some serious flaws in your articles comparisons. For instance taking RE back to 1820 is ridiculous relative to today. In 1820 if I did not like the price of land I could walk 2 miles westward and equally good land was free for the homesteading.

Steven, that's at 28k. The average income in the US is much higher. And those returns are extremely achievable -- especially if one has a spouse also working.

In the long term, a well balanced portfolio beats social security. More importantly, it frees the payer to do what he wants with the money -- including, if he wants, to pay for something /besides/ a long-term retirement.

If there is a bubble in anything these days, it's a bubble in Bubble Expertise. I've never seen so many people confident that they can see bubbles at hand, and predict bubbles in the future. None of these mainstream pundits saw the previous bubbles, and even if they did, they tepidly qualfied their assessments with "well maybe but it might not be."

Yet one economic school promoting gold ownership, the Austrian School of Economics, is the only school that had dozens of economists accurately see the recent dot com and housing bubbles (as well as several previous ones.)

The median individual income in the USA is $25,000/ year. Half of America makes less. As far as the methodology the author of the article:

"I assumed an average wage equal to the "average wage index" given in Table V.C1, page 98 of the 2007 Trustees Report, for each year from 1975 through 2009. This is nearly equivalent to starting at $8600 per year in 1975 and increasing 5% each year after that. For the low wage worker, I assumed 60% of the average. For the high wage worker I assumed 160% of the average. In each case I assumed an investment each year equivalent to either 6.2% of the wage for "employee" or 12.4% for the self employed."

LIsten to talk radio and you will get why Gold is sexy and valuable now .. they advertise like crazy to conservatives and republicans ..

they also advertise convenient food packaging for those preparing for a possible survivalist mode of existence .. I hope these people are either cynical or wrong .. I really hate such pessimism and doomsaying.. Munger is right .. if you buy gold, you're a me-first selfish chump .. invest in something! Believe things will get better..take part in the effort to make things get better..

Look at the return of gold vs. the DJIA since Nixon completely cut the dollar's tie to gold. As David in Qatar pointed out, the comparison of monetary gold returns from 1820 to 1971 is meaningless. It's the returns SINCE 1972 that matter.

Also remember that almost no one is really investing in gold. Most are too afraid, having been suckered in by the modern fiat economists and still believing it is a "barbarous relic". Well, what happens when the people realize paper money is worthless? What will happen to the value of gold then?

I agree with those pointing out the differences now compared to the past. An example would be to compare the Germany of the 1800's with Hitler's Third Reich. The ONLY thing of value after Germany's defeat in WW II Would have been property and/or gold! (or other "valuables" , i.e., jewelry , etc.) What happens if we are headed for the same kind of downfall? Also, how far in the future are we talking? Does "long-term" mean 5 years or 50 years in the future?

I feel that everything that I don"t need or want strongly is in a bubble. As I realize a want and attempt to lessen that want, that want enters into bubble country. The effort to do due diligence to acquire the unneeded is overwhelming. Just reading this article and posts makes me realize that me personally doing effective due diligence for my investment interests is unattainable. I am an ant at a picnic, Jack in the giants castle. I will collect a few due diligence crumbs and use them as best I can , and the potential for my fleet of wobbly ships to come in in a bounteous manner is unknowable. Thank you all for giving me endlessly at odds advice for how to pilot my pm ship through the dire straights ahead. Life lead in a certain manner is too easy.

Never got into gold as it has always been more than I could stomach, but I did buy a bunch of silver when it was 15 and 18 an ounce and tripled my money when I sold. Don't know if silver will do that again anytime soon, but I'm betting on it going up some more. Buying metal, as has been said, is more like savings. Its a place to park funds. But, at least for the forseable future, the value of metal parking spots is rising and will continue to do so until the Fed stops printing dollars like monopoly money.

That's per individual. The real median income per household is 50k. That said, the vast majority of people paying in for social security would do better putting that money in an index fund. Anyone who can't save for retirement after half a century is doing something wrong.

Gold is not an investment. It is the only alternative to the world's fiat currencies, which are beginning to enter their final death spiral towards zero.

No one can say at this point how or over what timespan this devolution will take place, and there will not doubt be brief periods when gold (and silver) get ahead of themselves, but unless you can see some politically palatable way out of the leveraged debt mess that the world has gotten itself into (and if you can, please give President Obama and Ben Bernanke a call, because they're waiting at the other end of the line for a clue), the trend is irreversible.

The last time the world turned to gold, in the late 1970s when runaway inflation threatened, the problem was correctable, though at great economic hardship, and it was corrected by one man: Paul Volcker. "Helicopter Ben" is a very different kind of man, and we have had ample time to assess the efficacy of his QE policies. And if you are holding your breath for Washington to get it's act together, please relax and exhale; it ain't going to do you any good.

Several surveys have estimated that no more than 1% of US assets are presently deployed into gold, and even if we double that to account for the price action of the last month, in the 1970s crises the proportion was north of 5%, and that was a fixable problem. Bear that in mind as you wrestle with the question of whether gold is just too expensive to buy at these levels. It is just that "wall of worry" psychology that has kept most ordinary prudent people out of gold during this, it's first leg up, and has instead drawn in the hedge funds and the mo-mo crowd. That's the dumb money and the weak hands, and when people like George Soros (who don't get it) dump, that's your cue to buy (if you do).

Over the next 15 years I expect stocks to return 8% per annum average, nominal. Gold is tricky because it's so volatile that the starting point matters, but if you take a recent price of $1900 as start, I'd expect gold to significantly underperform stocks in nominal terms over the next 15 years.

In real terms I think I'd rank them this way: stocks, real estate, gold, savings accounts, bonds. I expect both savings accounts and bonds to have a negative real return over the next 15 years. Only stocks actually create value and that's going to be in demand, as it has been throughout history.

I expect gold to have a precisely 0% real return over the next 15 years. That is because I use the gold price as my preferred measure of reality. An oz. of gold is an oz. of gold in any era and has the same utility in any era. I would argue that this utility is non-zero and is something of enduring utility to human beings. Opinion this may well vary; so this is just my opinion.

Tom, Dave, you and your staff gave me the best advice I have ever received. Mostly just following your buys, holds or sells. You really are for the little guy. I wish I had been a better follower, but thats another story. Time has told the story and you guys know your stuff.

I have never been a gold bug and have been fully invested in stocks for years and following your advice has been very helpful.

My issue is inflation. The dollar today is worth .03 cents vs the 1910 dollar in purchasing power. A one dollar gold piece in 1910 was worth one dollar, but today, a one dollar gold piece is worth about $190.00 in purchasing power. Gold prices have been controlled by the US Government since the lat 1700's, but President Nixon finally let gold float in the early 1970's. So from $35.00 an ounce to $1900.00 an ounce is a partial reflection of inflation and deficit spending.

Without some control over government spending through a balanced budget amendment, our government will inflate the economy to bail out the housing and jobs market. Legislators are elected to bring home the bacon, not run a balanced budget where priorities are set. Sure you can have a medical plan but you have to give up one or two wars to keep from going into further debt!!!

It seems that gold is a hedge against uncontrolled spending and congresses expanding largess. It is a free for all and there are no limits. The tipping point has been exceeded and there is no turning back unless Americans are to endure extreme economic hardship to get back to balance. I do not see it happening in my lifetime.

My stocks have done well, but am I keeping up with inflation and the loss of purchasing power of the dollar? I think not, particularly when you add in the taxes we pay as we are ratcheted into higher tax brackets. We are like mice running in a cage.

It might make some sense to own some gold until we see a clear direction to fiscal responsibility. If we passed a balanced budget amendment tomorrow, gold would drop like the stone that it is, but few believe it will happen any time soon.

How much is that dollar worth if invested in the S&P 500? In a savings account? In a savings account at 1% real return, it's worth a little under $3. In the S&P with a real return of 6.6%, it'd be worth $636. The only people who lost 97% are those who kept dollars under their mattresses -- and they deserve the return they got.

Since gold is such an important entity in the market, let's put it on the "Today's Market" box sponsored by WSJ.com which also houses the dow, and other averages. It would be a much needed addition. What do you think?????

While this is another way to explain contrarian investing, I did enjoy the article. I thought one of the comments to be either incorrect or over simplified - "A company's stock will always end up at zero at some point. It may take 1 year or 100 years, but zero is the final stock price of all companies." Absent a discrete event, this can only be true if the company distributed all its earnings and paid-in-capital. This can happen at any time and could be self initiated (e.g., liquidation of the business). Unless that happens, a company's stock cannot end up at zero. A discrete event would be some business reversal that causes the company to be bankrupt in which case the stock will be worthless.